This memorandum provides guidance regarding whether
employees engaged in egg processing activities are exempt as agricultural employees
from the minimum wage and/or overtime compensation requirements of the Fair
Labor Standards Act (FLSA), specifically 29 U.S.C. 213(a)(6)(A) and/or 29
U.S.C. 213(b)(12). While the exemptions apply on an individual employee basis,
the nature of the employer’s activities and facilities are relevant factors
when determining whether the work done by the employees comes within the scope
of agriculture. It is the position of the Wage and Hour Division (WHD) that employees
engaged in egg processing activities fall outside the scope of the FLSA
agriculture exemptions when the processing is performed on eggs not produced by
the farmer-employer; when the processing is more akin to manufacturing than
agriculture; or when the egg processing facility operates as an independent
business that is not subordinate to the farm’s farming operations.

As explained in greater detail below, whether employees
processing eggs as part of agricultural activities are exempt agricultural
employees depends on the facts of the individual case. Certain activities of
egg processors, however, such as the salting and sugaring of eggs, do not qualify
as FLSA agriculture and employees engaged in such activities are therefore
generally entitled to the FLSA’s minimum wage and overtime protections.

Background

Coverage under the FLSA is broadly construed, and exemptions
are narrowly interpreted and limited in application to those who are clearly
within the terms of the exemption. SeeArnold v. Ben Kanowsky, Inc.,
361 U.S. 388, 392 (1960); A.H. Phillips, Inc. v. Walling, 324 U.S. 490,
493 (1945); 29 C.F.R. 780.2. Section 13(a)(6)(A) of the FLSA exempts employees
employed in agriculture from minimum wage and overtime pay protections in
certain circumstances. See 29 U.S.C. 213(a)(6)(A). Similarly, Section
13(b)(12) of the FLSA exempts from overtime pay “any employee employed in
agriculture.” 29 U.S.C. 213(b)(12).

The definition of agriculture is divided into two branches:
primary and secondary agriculture. Primary agriculture includes “farming in
all its branches,” including the specific farming operations enumerated in
section 3(f) such as the cultivation and tillage of the soil; the production,
cultivation, growing, and harvesting of any agricultural or horticultural
commodities; and the raising of livestock, bees, fur-bearing animals, or
poultry. 29 C.F.R 780.105(b). Secondary agriculture encompasses “any
practices . . . performed either by a farmer or on a farm as an incident to or
in conjunction with” farming operations. 29 C.F.R. 780.105(c). While raising
chickens and harvesting eggs can be classified as primary agriculture, egg
processing cannot be so classified. See 29 C.F.R. 780.151(d). This
memorandum will therefore focus on the question of whether egg processing constitutes
secondary agriculture.

In order to qualify as secondary agriculture, an activity
must be (1) “performed by a farmer or on a farm,” and (2) “incident to or in
conjunction with such farming operations.” 29 U.S.C. 203(f). This guidance
will focus on the analysis needed to determine if the activities are “incident
to or in conjunction with such farming operations.” In determining whether employees
employed in an egg processing facility meet the criteria for the agriculture
exemptions, investigators should first determine if the eggs that are being
processed were produced by the farmer-employer. If so, investigators must then
evaluate whether the processing activities of the facility are more akin to
agricultural activities or manufacturing activities. Finally, if the egg
processing activities are more akin to agriculture, investigators must examine
whether the processing facility amounts to an independent business.

Eggs Produced by the Farmer or by a Third Party

Generally, a practice “performed in connection with farming
operations is within the statutory definition only if it constitutes an
established part of agriculture, is subordinate to the farming operations
involved, and does not amount to an independent business.” 29 C.F.R. 780.144.
The Supreme Court has explicitly acknowledged that “‘[t]he line between
practices that are and those that are not performed ‘as an incident to or in
conjunction with’ such farming operations is not susceptible of precise
definition.’” Holly Farms Corp. v. N.L.R.B., 517 U.S. 392, 408 (1996) (quoting29 C.F.R. 780.144). Typically, whether egg processing workers
employed in their employer’s own processing facility are within the scope of
secondary agriculture and therefore exempt from FLSA minimum wage and/or
overtime pay protections depends on a fact-specific determination.
Investigators should be aware that certain practices of egg processing
facilities will exclude them from coverage by the agriculture exemptions.
Importantly, processing that is performed upon any eggs that have been produced
by another egg producer does not constitute an activity that is incidental to
the farming operations and cannot be considered secondary agriculture under the
Act. See 29 C.F.R. 780.141. If during the workweek the employee handles
eggs from outside producers, the exemption criteria is not met in that workweek
and no other analysis is required. See 29 C.F.R. 780.10-.11. For workweeks
in which the employee handles only those eggs produced by the farmer-employer,
then the further analysis set forth below is necessary to determine if the exemptions
apply in those workweeks.

Processing Activities More Akin to Agriculture or
Manufacturing

When examining whether activities performed on agricultural commodities[1] fall within the definition
of secondary agriculture, courts also consider the following non-exhaustive
list of “special” factors:

the type of product resulting from the practice (i.e., whether the raw or natural state of the commodity has been changed);

the value added to the product as a result of the practice;

whether a sales organization is maintained for the disposal of the product;

the length of the period during which the operations are performed (when considered together with the amount of investment, payroll, and other factors discussed above); and

whether products resulting from the activity are sold under the producer’s own label rather than under that of the purchaser.

If the facility itself is integrated into the producer’s
farming operations and processes eggs only from its own farming operations,
investigators must consider whether the facility’s activities are “incident to
or in conjunction with” farming operations. 29 C.F.R. 780.105(c). In making
this determination, investigators must consider whether the activities are
agricultural in nature or more similar to manufacturing. The regulation at 29
C.F.R. 780.151(d) identifies certain egg processing activities (the
“[h]andling, cooling, grading, candling and packing” of eggs) that may be
performed in the “preparation for market,” and therefore are closer to common
agricultural activities. Such processing activities are thus considered
secondary agriculture.[2]

WHD’s regulation at 29 C.F.R. 780.147 instructs that it is
“necessary to consider the type of product resulting from the practice--as
whether the raw or natural state of the commodity has been changed” because it “marks
the dividing line between processing as an agricultural function and processing
as a manufacturing operation.” Id.See also Mitchell v. Budd,
350 U.S. 473, 481-82 (1956); Maneja v. Waialua Agric. Co., 349 U.S. 254,
268 (1955). WHD has explained that “a process that results in important
changes to an agricultural or horticultural commodity is ‘more akin to
manufacturing than to agriculture.’ Once the agricultural or horticultural
commodity is no longer in its unmanufactured state, the establishment loses the
agriculture exemption.” WHD Opinion Letter, 2001 WL 58865 (Jan. 17, 2001)
(citing Maneja, 349 U.S. at 265). See also Pacheco v. Whiting Farms,
Inc., 365 F.3d 1199, 1205 (10th Cir. 2004).
[3] Courts therefore consider
factors such as whether the chemical composition of the product has been
changed and whether foreign ingredients have been added to the commodity. See,
e.g., United Foods, Inc., 1999 WL 958486, at *3 (N.L.R.B. 1999).

As noted above, the regulation contains a non-exhaustive
list of “preparation for market” activities, including the “[h]andling,
cooling, grading, candling, and packing” of eggs. See 29 C.F.R.
780.151(d). The regulation also identifies other similar activities from which
we can analogize. Pursuant to this regulation, the cracking and shelling
of nuts and the extraction and blending of honey qualify as secondary
agriculture. See 29 C.F.R. 780.151(c), (l). The breaking and shelling
of eggs seems analogous to the cracking and shelling of nuts because both
activities involve the removal of an exterior protective casing without
altering the raw or natural state of the edible interior. The extraction of
honey from the honeycomb also seems substantively similar to the extraction of
egg yolks from their shells. We conclude therefore that the breaking of eggs
and the processing in preparation for market of whole liquid eggs, egg yolks,
egg whites, and other various components of the eggs are all activities that
may fall within the scope of secondary agriculture so long as they do not
involve adding foreign ingredients to the eggs or effecting an essential change
to the raw or natural state of the eggs.

Certain other egg processing activities, such as salting and
sugaring eggs, however, do not qualify as secondary agriculture because such
activities involve adding foreign ingredients to the agricultural commodity. Such
activities alter the raw or natural state of the eggs and are more akin to
manufacturing than to agricultural processing.

Similarly, when the drying of eggs transforms the liquid
interior of an egg into a solid powder form, it thereby effects a substantial
change to the natural state of the commodity. As discussed above, when the raw
or natural state of an agricultural commodity is altered and the chemical
composition of the product changes, such processing is more likely to be
considered a manufacturing operation than an agricultural activity. The egg
drying process, generally performed using a spray drying method, is more akin
to manufacturing and would not qualify as a preparation for market activity.[4] Powdered eggs can no longer
be considered to be in an unmanufactured state and thus the activity does not
fall within the scope of the secondary agriculture exemption. See, e.g.,
Williams v. Hilarides, 2013 WL 459611, at *9-11 (E.D. Cal. Feb. 5, 2013)
(ultrafiltration process by which a significant amount of water is removed from
raw milk is more akin to manufacturing than agriculture).

Based upon this analysis, if employees are only handling eggs
produced by their employer and the processing activities in which they are
engaged are more akin to agriculture than manufacturing, then the further analysis
set forth below is needed to determine if the employees are exempt agricultural
employees.

Processing Subordinate to or Independent of the Farming
Activity

The Supreme Court has explained that whether a particular
type of activity falls within the FLSA’s agricultural exemption “is not
determined by the necessity of the activity to agriculture nor by the physical
similarity of the activity to that done by farmers in other situations. The
question is whether the activity in the particular case is carried on as part
of the agricultural function or is separately organized as an independent
productive activity.” Farmers Reservoir & Irrigation Co. v. McComb,
337 U.S. 755, 761 (1949).

If an egg producer operates an egg processing facility as an
independent business enterprise, not integrated into the producer’s farming
operations, then the egg processing work will not be considered “incidental to
or in conjunction” with the primary egg-farming activities, and would therefore
also not qualify as secondary agriculture under the Act. See 29
C.F.R. 780.145. The FLSA regulations instruct that “[t]he character
of a practice as a part of the agricultural activity or as a distinct business
activity must be determined by examination and evaluation of all the relevant
facts and circumstances in the light of the pertinent language and intent of
the Act.” 29 C.F.R. 780.145. The regulations and applicable
case law both discourage “mechanical application of isolated factors or tests”
in making this determination and instead focus on the overall circumstances or
“total situation.” 29 C.F.R. 780.145. Whether an activity falls within
secondary agriculture is therefore highly fact-intensive. See Maneja,
349 U.S. at 264 (explaining that “it is clear that we must look to all the
facts surrounding a given process or operation to determine whether it is
incident to or in conjunction with farming”); Mitchell, 350 U.S. at 481
(same); Herman v. Continental Grain Co., 80 F. Supp. 2d 1290, 1292-93 (M.D.
Ala. 2000) (observing that “courts often hinge the distinction between the
qualifying and the non-qualifying employee [under Section 13(b)(12)] on the
exact nature of the work performed, the organization and structure of the employer’s
business, and the relationship between the two”).

WHD’s regulations identify several factors that
investigators should consider in determining if a practice is “part of the
agricultural activity” or a “distinct business activity.” Investigators should
look to “the general relationship, if any, of the practice to farming as
evidenced by common understanding, competitive factors, and the prevalence of
its performance by farmers.” 29 C.F.R. 780.145. Investigators should also analyze
the processing activities using any combination of the following factors deemed
appropriate based on the facts and circumstances of the investigation. No
single factor is controlling, and each factor may be entitled to greater or
lesser weight. These factors are:

the size of the operations;

respective sums invested in land, buildings and equipment for the regular farming operations and in plant and equipment for performance of the practice;

the amount of the payroll for each type of work;

the number of employees and the amount of time they spend in each of the activities;

the extent to which the practice is performed by ordinary farm employees and the amount of interchange of employees between the operations;

the amount of revenue derived from each activity;

the degree of industrialization involved; and

the degree of separation established between the activities.

See 29 C.F.R. 780.145.

Conclusion

The FLSA’s regulations and applicable case law reject
“mechanical application of isolated factors or tests” in making a determination
as to whether an activity falls within the agricultural exemption. See 29
C.F.R. 780.145. Accordingly, the overall circumstances of the egg processor’s
facilities, operations, and workforce will be examined in determining the
applicability of the section 13(a)(6)(A) exemption and section 13(b)(12)
exemption.

In order for employees performing egg processing activities
to be considered exempt under the agriculture exemptions to the FLSA’s minimum
wage and/or overtime requirements for a particular workweek, all conditions
outlined in this memo must be met:

The employee must only be processing goods produced by the
farmer-employer;

The processing must be more akin to agriculture than it is
to manufacturing; and

The processing operation must be subordinate to the
farming operation and not an independent business operation.

[1]
Eggs are included among the agricultural and horticultural products listed in 29
C.F.R. 780.112.

[3]
A processing activity may result in some amount of change
from the raw or natural state of a product and still be included in secondary
agriculture. For example, the cleaning, ripening, and shelling of agricultural
commodities fall within the scope of secondary agriculture. See, e.g., 29
C.F.R. 780.151. If the processing activity makes “important changes” to the
product, however, then the activity will be viewed as manufacturing rather than
agricultural processing. WHD Opinion Letter, 2001 WL 58865 (Jan. 17, 2001)
(citing Maneja, 349 U.S. at 265).

[4]
The regulation at 29 C.F.R. 780.151 indicates that the drying of certain
agricultural commodities (such as grain, seed, and forage crops; fruits and
vegetables; tobacco; and fur) may fall within the scope of the agriculture
exemption. Such drying activities, however, generally result in a less radical
change in form to the agricultural product than occurs during the egg drying
process.